Dáil Éireann Debate, Wednesday - 18 February 2009
43 Deputy Seán Barrett asked the Minister for Finance his views on whether it is acceptable that the investigation of adequate regulation should be conducted entirely by the Irish Financial Services Regulatory Authority itself and the consultants which it has chosen; and if he will make a statement on the matter. [6207/09]
View answerThe importance of having a regulatory system that provides financial stability and fosters probity has become all the more clear to us in these times of financial turmoil. I have already indicated that it is my view that the current approach to financial regulation needs to be reformed. The Central Bank Board and the Financial Regulatory Authority have examined the approach to financial regulation in Ireland and submitted their views to me yesterday. I apologise that this information is not in the official reply which was prepared before receipt of the letter.
In addition, an independent and reputable firm of consultants has been conducting a detailed assessment of the authority's business processes and procedures. I asked the board of the Central Bank and the Financial Regulatory Authority for their views, which they submitted yesterday. I have read their views and referred them for further consideration in the Department. Relevant developments are taking place at an EU and wider international level. New regulatory proposals, including improvements to the capital requirements directive, are due for adoption in early 2009 and the Ecofin Council, incorporating work being carried out at a wider international level, is giving consideration to the role and mandates of national regulators as well as other related issues such as prudential soundness, the orderly functioning of markets and stronger European co-operation on financial stability oversight.
As the Deputy will appreciate, steps have already been taken in the Credit Institutions (Financial Support) Scheme to improve regulation and arising from this, the oversight of the covered institutions has been greatly intensified. However, these arrangements will need to be developed further in light of both national and international considerations for further regulatory reform.
As Minister for Finance, I am responsible for the legislative framework within which the Financial Regulator operates. When I have considered the issues fully, I will bring my proposals for reform to Government.
With regard to investigations of particular events in financial institutions, the legislative framework provides significant powers to the regulatory authority to pursue these matters. In addition, Deputies will be aware that matters can also be investigated and are being investigated by the Office of the Director of Corporate Enforcement.
I wish to return to this issue. There is no one looking at the way in which the regulator performed its duties. The Minister is talking about new reform and new institutions being put in place. The only one looking at how the regulator conducted its duties is itself and this is not acceptable. There has been too much gross failure. The public are appalled at the golden handshake for the former regulator and the regulatory system cannot be left to itself.
Is there not a question about the role played by the regulator when the Quinn shareholding was unwound? It would appear the regulator accepted legal advice without probing it. Is there not a question about the role of the regulator with regard to Irish Life & Permanent when it was in possession of that information and according to the Minister, it was allowing him to proceed to put money into Irish Life & Permanent without alerting him to the seriousness of the situation? The Minister decided on nationalisation later, but in December the regulator had been in possession of this information for months and nothing was done.
The only time we saw swift and effective action was when the Irish Life & Permanent issue came into the public domain and immediately, three executives were gone in one institution. is that not the kind of activity in which the regulator should be involved? It should not be left to the force of public opinion to effect change.
Clearly the regulator is completing the investigation into the two transactions referred to by Deputy Bruton. Some of the leaks of material about this matter may come from parties who have an interest in the outcome of the investigations being carried out by the regulator.
With regard to the Irish Life & Permanent transaction, I asked to meet the chairman and the chief executive last Thursday when the media reports appeared which suggested that the regulator had some prior knowledge or notice of the particular transaction of the back-to-back arrangement between Anglo Irish Bank and Irish Life & Permanent. When I met the chairman and the chief executive in the Department at lunchtime last Thursday after I left this House, they informed me there was no question of the regulator giving any prior approval or sanction or approbation to that transaction. The regulator is entitled to complete its investigations and bring the full facts to public light.
Who is assessing the regulator?
With regard to the Quinn transaction, Deputy Bruton suggested that the regulator relied on legal advice on the transaction furnished by the bank itself. The regulator has to be afforded an opportunity of putting the full facts on the record as to whether it obtained independent legal advice of its own. I remind Deputies that many of these reports are necessarily selective with regard to the complete picture of the transaction and the role of the regulator because there are persons at large who have a vested interest in spreading the blame for transactions in which they were involved.
When Deputy Brian Lenihan became Minister for Finance, who told him about the difficulties arising from the overhang of the Quinn shares? The Taoiseach said earlier this week that the Minister was advised after he became Minister. Was the advice given by the regulator, the Central Bank, his departmental officials or someone else? If it was not the regulator or a message conveyed from the regulator via other sources, why was it not the regulator? The Taoiseach said that the regulator had become aware and the Central Bank had advised the Taoiseach on 17 March. That date became referred to in the popular media as the St. Patrick's day massacre as a result of the plummeting in value of the Anglo Irish shares. The Taoiseach was told when he was Minister for Finance. If the Taoiseach read the newspapers he could not have missed the St. Patrick's day massacre as it was such an outstanding event.
Who told the Minister for Finance and what has been the role of the regulator? The regulator seems to have had a central role in unravelling the difficulty of the Quinn share overhang. Therefore, how can the regulator be investigating the unknown circle of ten millionaires who got loans of €30 million from Anglo Irish Bank, without recourse for the shares, to prop up the share price of the bank? This is one of the events at the heart of the international shredding of our reputation. I ask the Minister to explain this to the House so there is some clarity about what happened.
On my appointment as Minister for Finance last May, my Department advised me of the existence of the contract for difference regarding the Quinn position in Anglo Irish Bank. I was advised that the existence of this contract for difference, which Mr. Quinn had not committed himself at that stage to purchasing, was a serious threat to the stability of the bank and that the Department had been in communication with the regulator and the Central Bank to ensure that this matter was unwound as soon as practicable. Beyond that, I was not furnished with any information of a written character about this issue, other than it was a critical issue for the share price of the institution. Subsequently, I was advised in late July that a group of investors had invested in Anglo Irish Bank to resolve these problems and that legal advice obtained by the bank indicated that the transaction was compliant. This is the extent of my knowledge of these matters.
The Minister will recall I wrote to him before Christmas enclosing a copy of a letter I wrote to the regulator outlining the extent of my dissatisfaction with the regulator following my meeting with him.
Yes.
The Minister will recall I spoke to him in confidence about my concerns rather than speaking in the House because I was very concerned. I received a gobbledegook reply from the regulator but I had quite a long meeting with the regulator and his top staff. The regulator was fully aware of these situations. Was the source of the Minister's information from the regulator or from the Central Bank or from both? We deserve to be told.
No. The source of my information about this matter is my Department. In view of the concerns raised with me by Deputy Burton and because of concerns which I developed myself from media coverage, when the decision was made to capitalise Anglo Irish Bank for €1.5 billion, I specifically asked my Department, in the course of the due diligence, to examine the nature and character of the Quinn transaction.
There is a legislative framework in place which facilitates action by the regulator. The regulator has known about this mess going on for over a year and there has been no result. Is the regulator making interim or progress reports about these ongoing investigations to the Minister's Department? Some of us find it extraordinary that it is taking the regulator so long to get to the bottom of this.
When the PricewaterhouseCoopers report was published, how many items in that report were referred to the Financial Regulator?
I can arrange for that information to be given to the Deputy.
Is the Minister not aware?
There is no evidence regarding the Quinn transactions in the report.
They were bad debts.
Regarding other matters that may have been referred to the regulator, I will get the information required by the Deputy.
Who will repay the €300 million?
As I have often pointed out, the PricewaterhouseCoopers report was an exercise in which a large number of officials worked through the different exposures of six institutions with an accountant from that firm.
This was €30 million——
Some €300 million is a significant exposure to the banks.
May I finish my reply?
Allow the Minister to continue without interruption.
The work was work in progress and, in respect of Anglo Irish Bank, as with other banks, went through successive drafts. At the end of October, a draft report received by the Department referred to the existence of a loan by Anglo Irish Bank to Irish Life & Permanent on a back-to-back date basis without any dates annexed. The Department referred the matter to the Financial Regulator, who initiated an investigation.
On 18 November, the Governor of the Central Bank wrote to me and sent a final summary of the PricewaterhouseCoopers report, which did not refer to the Irish Life & Permanent transaction. At no stage was the transaction in respect of the Quinn Group dealt with in the report. I want the record of the House to be clear in that regard.
I find that amazing.
I wish to ask a brief supplementary question.
We have gone over time with this question. Only four minutes remain. As the next question is related, I propose to use those four minutes on this matter with the agreement of the House. Is that agreed? Agreed.
According to the regulator, the PricewaterhouseCoopers study and its various drafts were to drill deep into the balance sheets of the covered institutions. The loans total €300 million at €30 million per head among the ten individuals. Even for Anglo Irish Bank, this is a significant loan exposure in terms of individuals. How is it possible that the loans were not listed for examination or advised to the Minister as to their status, given the fact that the collateral used for them was shares?
All individuals of high net worth were considered in the PricewaterhouseCoopers exercise, but the matter in question was not disclosed in the report at any stage.
Why not? It is what the report was about.
We must await the report of the regulator. Last week when questions on the back-to-back transaction with Irish Life & Permanent were raised, I tried to be helpful to the House, somewhat to my own discredit, by putting as much of the information as possible into the public domain and outlining the nature of the transaction. It was a simple transaction and, while it remains under investigation by the regulator, its essential features could be easily disclosed. This is not the case in respect of the Quinn Group transaction, which is complex. We await the report of the regulator on it.
Are they nominees of secret, hidden accounts?
I do not know as of yet.
Why did the Minister believe that the House was not entitled to know that Anglo Irish Bank was under investigation for both the unwinding of the Quinn Group's shareholding and Irish Life & Permanent's deception concerning its deposit base when he was proposing legislation for the nationalisation of Anglo Irish Bank? Did he not believe this to be material information that would affect the opinion of the House and the shape of the legislation? One of the proposals that we sought to adopt was to the effect that any write-off of loans by the bank would be put into the public domain. It was not even reached as an issue, but knowing the ten names would have resolved some concerns.
Regarding the defence used, namely, that the investigation could have been prejudiced, all of the information is in the public domain, but no one is suggesting that the investigation is being abandoned because it has been prejudiced and cannot reach a fair conclusion.
I cannot warrant the accuracy of all of the information in the public domain, as I have yet to receive the regulator's full report on the Quinn Group issue. This is an important point.
The Minister signed off on the report in July.
The inquiries were incomplete prior to the bank's nationalisation.
We were entitled to the information.
I identified my concerns regarding issues of corporate governance, but I could not have put information that had not been finalised on the record of the House. The transactions involving the Quinn Group are complex in character and we must await the regulator's final report to deal with them.
Concerning the identification of parties who are customers of financial institutions, it would require the exercise by the Director of Corporate Enforcement of his discretion to consider invoking a High Court inspection to bring matters of that character to light.
Written Answers follow Adjournment Debate.
